Business Growth Fund will 'need to refocus’

The Business Growth Fund (BGF) may need to refocus on smaller investments to
be successful, according to entrepreneurs and investors.

The £2.5bn fund will provide debt and equity to growing companies with sales of between £10m and £100m that are looking to raise between £2m and £10m.

A venture capitalist whose firm invests between £1m and £10m into companies told Business Club the fund may need to be “refocused” soon after launch because of a “mismatch between target investment size and target company size”.

Patrick Reeve, managing partner of Albion Ventures, said: “This is a welcome initiative and new players are always a good thing.

“But in the £2m to £10m space it’s almost always companies with sales of less than £10m looking for funding.”

In a discussion on the Business Club forum, business owners and experts broadly agreed with Mr Reeve’s assessment.

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David Molian, director of the Business Growth Programme at Cranfield School of Management, said: “Smaller businesses will be in the frame sooner or later.”

He added: “It’s significant that the BGF has an equity and debt offer: they could end up filling [a small part of] the space vacated by high street lenders.”

Bob Beattie, business development director of engineering firm Arcade UK, argued the fund would be more effective if it was targeted at established growing companies with sales of less than £10m: “Larger companies are not and should not be excluded as finance is scarce anyway but 'money tends to begat money’ and the larger companies will find lenders.”

Colin Weatherspoon, managing director of business publisher Cobweb Information, said the fund should invest in smaller businesses to address an 'equity gap’.

“Many of the firms in the £10m+ size range will have sufficient wherewithal to fund their expansion plans on their own.

“Firms with less the £10m turnover should definitely be the target beneficiaries for funding of between £1-10m.”

Mr Reeve said an alternative could be for the fund to make larger investments but keep the target company size the same.

The BGF is owned by Barclays, HSBC, Lloyds, Royal Bank of Scotland and Standard Chartered and will invest for between five and seven years.

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